Monocultural farming/ Palm oil

Demand for palm oil has increased rapidly over the past decade due to dietary changes and the fact that it is now also used as biofuel. Global palm oil production is predicted to be double the 2000 level by 2030 and triple by 2050.

Palm oil production and industry

Growth of the palm oil industry has positive economic benefits, especially for Asian countries seeking entry to global markets. However, the production of palm oil raises environmental and social challenges.

Deforestation for palm oil plantations (which is sometimes illegal) destroys habitats and threatens extinction of some species as well as contributing to damaging greenhouse gas emissions. As well as raising environmental concerns, the creation of massive monoculture plantations creates conflicts with local communities including involuntary resettlement and violation of land rights.

To address these concerns and promote sustainable palm oil production, Deutsche Bank introduced a set of guiding principles for palm oil industry transactions in 2012. As a minimum, clients active in this sector are required to provide a certification plan for their plantation or mill in accordance with the Roundtable on Sustainable Palm Oil (RSPO) criteria.

The RSPO standard was established in 2004 and is widely supported by international consumer goods manufacturers and financial institutions. The bank also engages with clients during the certification process when requested.

We have also collaborated with other banks to explore how we can support efforts by the consumer goods industry to drive deforestation out of companies’ supply chains. This initiative goes beyond palm oil and covers soft commodities such as timber, soy and beef which together account for about 50 percent of global deforestation.

Zero net deforestation

Through the Banking Environment Initiative (BEI), Deutsche Bank together with other international financial institutions is working with the Consumer Goods Forum to help consumer goods companies achieve their goal of “zero net deforestation” in their supply chains by 2020. A Soft Commodities Compact has been concluded between the Consumer Goods Forum and the BEI. In January 2015 the BEI published a technical guide that was developed in order to clarify the key term “zero net deforestation”. In that guide the BEI adopts the Consumer Goods Forum’s explanation of the term, which is itself derived from the definition of the World Wildlife Fund WWF.

What is Deutsche Bank’s position in respect to the palm oil sector?

Growth of the palm oil industry has had positive economic benefits, especially for Asian countries seeking access to global markets. However, the production of palm oil can raise environmental and social challenges if not conducted responsibly.

How can Deutsche Bank ignore the negative impact of the current approach of the palm oil industry?

Deforestation of tropical forests for palm oil plantations destroys habitats, threatens extinction of some species, contributes to greenhouse gas emissions and climate change and creates land conflicts with local communities.

To reflect these concerns and promote more sustainable palm oil production, Deutsche Bank introduced a set of guiding principles for transactions in this sector 2012. As a minimum, clients are required to provide a certification plan for their plantation or mills in accordance with the Roundtable on Sustainable Palm Oil (RSPO) criteria.

The RSPO standard was established in 2004 and is widely supported by international consumer goods manufacturers and financial institutions. The bank also engages with clients during the certification process when requested.

What does Deutsche Bank undertake to contribute to an improvement of the situation in the palm oil sector?

To broaden our understanding of challenges associated with the palm oil sector, we engage with experts e.g. research institutions active on the ground in Asia. We are also in dialogue with the German Forum for Sustainable Palm Oil.

In addition, Deutsche Bank has developed, with a number of other banks, the so-called “soft commodities compact” to support the objective of major consumer goods companies to achieve zero net deforestation in their supply chains by 2020. This initiative covers palm oil and other commodities such as timber, soy and beef, which together account for about half of global carbon emissions arising from deforestation. The compact sets minimum standards for bank lending policies that align with the Consumer Goods Forum (CGF) sustainable procurement standards for the priority soft commodities. For palm oil, the minimum standard is based on RSPO criteria.

The compact also encourages banks to work with clients toward sustainable financing solutions. As a result, Deutsche Bank contributed to the development of the “Sustainable Shipment Letter of Credit”. This is a letter of credit for goods that attaches a certification document (such as RSPO certified) to standard documentation. This will allow trade finance banks to differentiate between conventional and ‘Sustainable Shipments’. Our Trade Finance business is ready to work with consumer goods companies and support them in their effort to reduce deforestation.

How Deutsche Bank decides about its business relationships – a case study

Triggered by alleged environmental and social issues linked to deforestation and community conflicts reported by NGOs, we reassess a business releationsship with a client active in agribusiness, especially palm oil production in Asia.

ES risk
evaluation

Apply specific guidance we established for monoculture farming.

Take various aspects into consideration, including:

RSPO membership and certification

Commitment to non-deforestation and protection of forests with high conservation value and no fire usage

No land grabbing

Approach for community engagement

Initiate the collaboration with a group of peers in the financial industry.

Findings and
actions

Client has sound management system in place that includes:

RSPO membership with target to complete the certification in Asia by 2015/2016

An implemented set of policies pertaining to sensitive topics

Despite some efforts by the client to increase sourcing volume of sustainably grown palm oil from local thrid-party suppliers, issues exist, e.g.:

Lacking control over supply chain

Insufficient policy roll-out/implementation outside of Asia

Deutsche Bank and other banks with substantial business ties to the client agree to collaborative engagement. Key areas of engagement include:

RSPO application and monitoring mechanisms

Management of supply chain

Implementation of new policies

Discussion with NGOs on the topic as well as broader dialogue with research institutions and academic experts on issues associated with palm oil production.

Decisions and follow-up

Maintain the business relationship but continue to engage client with our peers and maintain broader discussions on issues associated with palm oil production.

Current developments

Infographic: Case study palmoil

Statement on our involvement with Bumitama Agri Group

Deutsche Bank´s holdings of Bumitama Agri Group were shareholdings of two Asian DWS funds only. In the meantime the shareholdings by these funds were reduced close to zero. The responsible investment managers in the respective business units are aware of the issues in respect of Bumitama Agri Group. Although the current holding is negligible they will further survey these issues and their findings will of course influence any investment decision. Generally before we make a decision on a potential investment we perform various ESG related tests. In determining the ESG performance and attached risks of companies our investment team uses specialized external data providers (e.g. Sustainalytics, MSCI etc.), sell-side research or other relevant public information. The emphasis we place on the various dimensions of a company’s ESG performance is determined by the specific mandate we oversee for our clients.

March 31, 2014

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